AUDI315 Problems

Problem 1

ABC Company provides re rement benefits to employees through a defined contribu on plan. The plan
provides that ABC Company shall contribute 8% of gross payroll annually to a funding agency. In
addi on, the en ty is also required to contribute 5% of annual sales exceeding P10,000. During 2024, the
gross payroll of the Company was P6,000,000 and total sales amounted to P35,000,000.

1. Determine the re rement benefit expense for 2024.

2. Journal entry to record the contribu on to the fund and the re rement benefit expense assuming
that in 2024
a. The Company contributed P1,800,000 to the trustee
b. The Company contributed P1,500,000 to the trustee

Problem 2

The memorandum records of ABC Company on January 1, 2024 show the following:

Defined benefit obliga on, January 1 P3,000,000

Fair value of plan assets 2,600,000

The following are the informa on for 2024

Service cost for the year 2024 P1,000,000

Discount rate 10%
Actual return on plan assets 300,000
Benefits paid 350,000
Contribu ons to the plan 900,000
Actuarial loss on re-measurement of defined benefit obliga on 100,000

1. Determine the net prepaid/accrued defined benefit cost that will be shown in the December 31,
2023 statement of financial posi on.
2. Compute for the re rement benefit expense for 2024.
3. Compute for the re rement benefit cost that is taken to other comprehensive income.
4. Journal entry to record re rement benefit cost and contribu ons to the plan assets.
5. Determine the balances of the benefit obliga on and plan assets on December 31, 2024.
6. Determine the net defined benefit liability/asset that will be shown in the December 31, 2024
statement of financial posi on.

Problem 3

Determine whether the following are

a. Non-deduc ble expenses
b. Non-taxable revenues
c. Deduc ble temporary difference
d. Taxable Temporary difference
1. The recognized expense for expected credit losses is more than the accounts wri en off during the
period
2. Tax deprecia on in excess of deprecia on for accoun ng purposes
3. Interest earned on investments in a tax-exempt government securi es
4. Interest earned on deposits with banks
5. Excess of profit earned over the profit reported under the installment method for income tax
purposes
6. Deduc ble insurance premiums paid in excess of insurance expense reported for financial repor ng
7. Provision for loss pending lawsuit expected to be se led during the next repor ng period
8. Insurance premiums paid on a life insurance policy where the en ty is the designated beneficiary
9. Impairment loss a ributable to goodwill
10. Warranty expense reported for financial repor ng purposes in excess of actual costs of repairs done
during the period
11. Collec ons of rentals in excess of rent revenue reported during the period
12. Dividends received by a domes c corpora on from a domes c corpora on
13. Increase in fair value of equity investments measured at fair value through profit or loss
14. Decrease in fair value of equity investments measure at fair value through other comprehensive
income
15. Excess of book basis over tax base of an intangible asset

Problem 4

You are given the following informa on for ABC Company for the year ended December 31, 2024

a. Capital gains subjected to CGT, P2,000,000

b. Fines and penal es for viola on of law, P400,000
c. Premium payment for a life insurance policy on the president, P40,000. The president designated his
family as beneficiaries
d. Tax deprecia on in excess of book deprecia on, P1,500,000
e. Excess of income on installment sales over income reportable for tax purposes, P1,000,000
f. Rent collected in advance of period earned
g. Warranty provision accrued in advance of the period paid, P400,000

Required:
1. Indicate whether the above items are permanent differences and temporary differences. Classify the
permanent differences as non-taxable revenue or non-deduc ble expense. Classify the temporary
differences as non-taxable revenue or non-deduc ble expense.
2. Determine the taxable income.
3. Compute for the income tax payable, deferred tax asset, and deferred tax liability.
4. Prepare the entries.
5. Compute for the total income tax expense, iden fying the current and deferred tax expenses
separately.

Problem 5

ABC Company has taxable income for the year 2024 amoun ng to P5,000,000. The tax bases for its
assets and liabili es on December 31, 2024 are equal to their carrying amounts except for the following:
 Carrying amount Tax base
Accounts receivable P1,900,000 P2,100,000
Inventories 950,000 850,000
Building and equipment 10,000,000 8<200,000
Provision for warranty 800,000 0
Unearned rent 500,000 0

The Company’s statement of financial posi on on December 31, 2023 showed deferred tax liability of
P1,400,000 ad deferred tax asset of P525,000.

The Company is subject to an income tax rate of 25%. It is believed that any deferred tax asset is fully
realizable. The Company paid no income tax during 2024 rela ng to 2024 opera ons.

a. Determine the future taxable and deduc ble amounts as of December 31, 2024.
b. Compute the balance of income tax payable, deferred tax asset and deferred tax liability as of
December 31, 2024.
c. Journal entries.